Seven Leading Stocks Ready To Breakout

The overall stock market has been working on a consolidation area during the past two weeks, following a 10% pullback in most indexes. While there has not been a lot of volume on the up days compared to the volume on the way down, the fact of the matter is that this market is building a consolidation area.

Nobody can predict the future. That means that nobody has any clue if this market will or will not break up or down. It could just continue to build a consolidation pattern over the intermediate time frame. The only proper way to play a post consolidation pattern is to be ready for any possible outcome. That means having a game plan ready for a breakdown and having a game plan ready for a breakout.

Today, I want to focus on my plan for a market breakout above the 50 day moving average on the Nasdaq. If we get a breakout above this line, these are seven leading stocks I am watching for breakouts to new highs. What constitutes a leading stock? strong EPS growth, strong sales growth, high profit margins, high return on equity, low to no debt, mutual fund ownership growth, management ownership, high future EPS estimates, a high Relative Strength line to the overall market, and is within 15-20% of its 52-week high.

I am a trend following trader and prefer buying strength and selling weakness. This methodology has worked for me for 16 years. It doesn’t work for everyone.

The charts and game plan:

I would like to see Chipotle Mexican Grill (NYSE:CMG) breakout to a new all-time high on heavy volume. A breakout on volume is my signal to go long. If a breakout happens on lower volume, I will have to wait for a secondary pocket pivot point buy signal off the 10 day moving average. If I do not get either signal, I will not be going long.

Priceline.com (NASDAQ:PCLN) produced a beautiful pocket pivot point buy signal on Friday. Sadly, it was due to options expiration and thus the signal by itself can not be validated as a new long position. Instead, I would love to see Priceline.com breakout to a new all-time high on strong volume. This is where I will initiate a new long position. If the breakout comes with no volume, I will wait for a secondary buy signal before making a move.

Buffalo Wild Wings (NASDAQ:BWLD) is another leading stock building a tight consolidation pattern. A breakout to a new all-time high on heavy volume is exactly where I want to get long this stock. If volume is lower on the breakout, a secondary buy signal will have to be produced.

NetSuite (NYSE:N) and Intuit (NASDAQ:INTU) are two Computer Software stocks that are also building solid consolidation patterns. Just like all of the stocks above, a breakout to new highs on strong volume will trigger my alerts that will get me long. If volume is lower, as you now may already know, a secondary pocket pivot point buy signal off the 10 day moving average will have to be triggered before a new long position is initiated.

The most important weapon in my trading arsenal is cutting losses. If I get long signals on any of the stock above and the signal proves to be false thus leaving me with losses, I will begin to sell my positions. If a stock ever (I follow this rule 100% of the time) closes below the low of day of the signal date, the signal will be considered false and the position will be liquidated. Protecting your capital in a trendless overall market is absolutely necessary to ensure survival so that you are capitalized to make money in the next trend up or down.

More Posts by this author

• Seven Leading Stocks Ready To Breakout